Extending The Bush Tax Cuts Forever: Fiscal Insanity

The Congressional Research Service posted a report examining what affect the looming expiration of the Bush tax cuts would have on the economy. According to The Daily Dish, extending these breaks forever would be fiscally insane.

The Atlantic.com reports

A recent study by Alan Auerbach and William Gale projects that tax revenue would have to be permanently increased by 4.6% of GDP just to keep the debt-to-GDP ratio at the current level over the next 75 years under the current law scenario (i.e., allow the Bush tax cuts to expire). They refer to this as a fiscal gap of 4.6%.

If the Bush tax cuts were permanently extended the estimated fiscal gap rises to 7.2%. They project that by 2085, debt as a percentage of GDP would approach 600% under the current law scenario and 900% if the Bush tax cuts are extended—extraordinary levels that are unprecedented for the U.S.

Read more here

New Figures Detail Depth Of Unemployment Misery

According to data from a new Social Security report one out of every 34 Americans that earned wages in 2008, had no income whatsoever in 2009. Although the report came out earlier in the month, this article on Tax.com has brought the data back into the spotlight.

Huffington Post.com reports:

It's not just every 34th earner whose financial situation has been upended by the financial crisis. Average wages, median wages, and total wages have all declined -- except at the very top, where they leaped dramatically, increasing five-fold.

Johnston writes that while the number of Americans earning more than $50 million fell from 131 in 2008 to 74 in 2009, those that remained at the top increased their income from an average of $91.2 million in 2008 to almost $519 million.

The wealth is astounding, says Johnston. "That's nearly $10 million in weekly pay!... These 74 people made as much as the 19 million lowest-paid people in America, who constitute one in every eight workers."

Read more here

Bernanke Says Federal Reserve Ready to Further Stimulate the Economy

From LATimes.com:

Federal Reserve Chairman Ben S. Bernanke on Friday laid out a case for the central bank to take further action to bolster growth, citing the risks of prolonged high unemployment and a U.S. economy slipping into a deflationary spiral.

In a much-anticipated speech in Boston, Bernanke did not spell out details of how and when the Fed would take action. But the first option that he mentioned was a program of buying additional assets, namely government bonds, in an effort to drive down long-term interest rates and stimulate economic growth.

The central bank is widely expected to announce such a program, known as quantitative easing, at the conclusion of its next policymakers' meeting on Nov. 2 and 3.

"There would appear to be a case for further action," he said at a conference sponsored by the Federal Reserve Bank of Boston.

As Bernanke spoke, the government released statistics showing the so-called core inflation rate, which excludes volatile energy and food prices, was unchanged in September and is now running at an annual rate of 0.8% — well below the Fed's informal desired target of 1.5% to 2%. Separately, there was better-than-expected news on last month's retail sales activity as total sales rose 0.6% from the prior month, boosted by higher auto sales.

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Fannie Mae’s Duncan Says Homebuyer Tax Credit Shifted Demand

According to Douglas Duncan, Chief Economist of Fannie Mae, the recently expired homebuyers credit only shifted demand in the housing market. He also does not expect the credit to have any lasting impact on home values in the U.S.

“Temporary tax credits change behavior temporarily,” Duncan said today at a National Association of Real Estate Editors conference in Austin, Texas. “It’s simply shifted demand forward.”

“It actually created some price appreciation that’s not supportable long term,” Duncan said of the tax credit.

The percentage of consumers surveyed who planned to buy a home in the next six months fell to 1.9 percent in May after touching a seven-month high of 2.8 percent in March, the Conference Board said last week. The New York-based group’s index of overall consumer confidence rose for three straight months as the economy expanded and the job market improved.

Prior to the expiration, sales of previously owned homes jumped 7.6 percent to a 5.77 million annual rate in April, the highest level in five months, the National Association of Realtors said May 24. The median price increased 4 percent from a year earlier.

For more information on the long term effects of the credit, and Duncan’s speech at the National Association of Real Estate Editors check out this article on BusinessWeek.com.

Beyond Skills and Smarts: Thriving in the New Economy

Last week one of my favorite blogs, The Glass Hammer posted a very interesting article by Liz Cornish on how to thrive in today’s tough economy. You can check out a section of the entry below, or click here for the full text.

It’s been a tough and frustrating year for financial professionals. Watching other smart, motivated people lose their jobs is sobering. Increased regulation is forcing many institutions that were playing by the rules to endure shrinking margins and panicked customers. It’s like being grounded because your sibling broke curfew. As the economy shifts and uncertainty prevails, what should women in finance do to ensure their own future?

First, congratulate yourself. You’re a motivated woman in the right industry. Sure, there will be changes and disruption, but finance is here to stay. As Patty Vantuhl of Bank of America noted, “There will always be a financial world. Names and players will change. But people will always need a way to store, access, invest, leverage and keep track of their money.” If you were in the newspaper publishing business, this would be a very different article.

So you’re in the right place, right career. Now what? What will it take to thrive in the new economy?

Obama Says Jobless Rate Likely to Tick Up for Several Months

Just days after returning from a week of travel, President Obama is making headlines this morning with his announcement that the country’s unemployment problems are not likely to improve any time soon.

"My expectation is that we will probably continue to see unemployment tick up for several months," Mr. Obama told reporters after a meeting with Dutch Prime Minister Jan Peter Balkenende.

According to a new article from the Wall Street Journal, “unemployment stood at 9.5% nationwide last month, a rate that has prompted calls for additional stimulus measures, as well as criticism that the earlier $787 billion package has so far failed to create jobs. Mr. Obama, who has said he believes joblessness will soon hit 10%, will visit Michigan later Tuesday, a state already dealing with double-digit unemployment.”

While he said he doesn't have a "crystal ball," Mr. Obama said he anticipates unemployment will follow historical trends and lag "for some time" even after an economic recovery begins.

On the positive side, he said the U.S. has "seen some stabilization in the financial markets, and that's good because that means companies can borrow and banks are starting to lend again."

"The challenge for this administration is to make sure that even as we are stabilizing the financial system, we understand that the most important thing in the economy is people able to find good jobs that pay good wages," Mr. Obama said.

With the economy stalling, and the administration’s recent admission that they had underestimated the scope of the troubled economy it is no wonder that experts are beginning to question Obama. According to a story on CBS News, “Obama’s economic forecasts for long-term growth are too optimistic, many economists warn, a miscalculation that would mean budget deficits will be much higher than the administration is now acknowledging.”

Christina Romer, chairwoman of the White House’s Council of Economic Advisers, said in a POLITICO interview that the administration—like many independent economists—did not fully anticipate the severity and pace of this recession. She said the White House will be updating its official forecasts.

The new numbers will come as part of a semiannual review that, under ordinary circumstances, is the kind of earnest-but-dull document that causes many Washington eyes to glaze over.

This time, however, the new forecasts - if they are anything like what many outside economists expect - could send a jolt through Capitol Hill, where even the administration’s current debt projections already are prompting deep concerns on political and substantive grounds.

Volatile Swings for Price of Oil Hobble Industry

From the NY Times.com:

The extreme volatility that has gripped oil markets for the last 18 months has shown no signs of slowing down, with oil prices more than doubling since the beginning of the year despite an exceptionally weak economy.

The instability of oil and gas prices is puzzling government officials and policy analysts, who fear it could jeopardize a global recovery. It is also hobbling businesses and consumers, who are already facing the effects of a stinging recession, as they try in vain to guess where prices will be a year from now — or even next month.

A wild run on the oil markets has occurred in the last 12 months. Last summer, prices surged to a record high above $145 a barrel, driving up gasoline prices to well over $4 a gallon. As the global economy faltered, oil tumbled to $33 a barrel in December. But oil has risen 55 percent since the beginning of the year, to $70 a barrel, pushing gas prices up again to $2.60 a gallon, according to AAA, the automobile club.

“To call this extreme volatility might be an understatement,” said Laura Wright, the chief financial officer at Southwest Airlines, a company that has sought to insure itself against volatile prices by buying long-term oil contracts. “Over the past 15 to 18 months, this has been unprecedented. I don’t think it can be easily rationalized.”

Millionaires Go Missing

From the Wall Street Journal.com:

Here's a two-minute drill in soak-the-rich economics:

Maryland couldn't balance its budget last year, so the state tried to close the shortfall by fleecing the wealthy. Politicians in Annapolis created a millionaire tax bracket, raising the top marginal income-tax rate to 6.25%. And because cities such as Baltimore and Bethesda also impose income taxes, the state-local tax rate can go as high as 9.45%. Governor Martin O'Malley, a dedicated class warrior, declared that these richest 0.3% of filers were "willing and able to pay their fair share." The Baltimore Sun predicted the rich would "grin and bear it."

One year later, nobody's grinning. One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller's office concedes is a "substantial decline." On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year -- even at higher rates.

No doubt the majority of that loss in millionaire filings results from the recession. However, this is one reason that depending on the rich to finance government is so ill-advised: Progressive tax rates create mountains of cash during good times that vanish during recessions. For evidence, consult California, New York and New Jersey (see here).

The Maryland state revenue office says it's "way too early" to tell how many millionaires moved out of the state when the tax rates rose. But no one disputes that some rich filers did leave. It's easier than the redistributionists think. Christopher Summers, president of the Maryland Public Policy Institute, notes: "Marylanders with high incomes typically own second homes in tax friendlier states like Florida, Delaware, South Carolina and Virginia. So it's easy for them to change their residency."

All of this means that the burden of paying for bloated government in Annapolis will fall on the middle class. Thanks to the futility of soaking the rich, these working families will now pay Mr. O'Malley's "fair share."

Fees, Taxes On the Rise as New York Families Struggle Thru Bad Economy

The NY Daily News posted a new story the other day on how both taxes and fees are rising as families continue to struggle during this economic crisis. You can read a snippet of their article below or check out the full text here.

Jim Feasel is a retired NYPD detective, an expert in figuring out who did it and why.

But now there’s a problem in his personal life that he can’t solve and he feels handcuffed.

“How did the city’s appraised value of my home go up $75,000 last year. . . when property values went down 10% or more?” bellowed Feasel, who owns a two-family home in Woodside, Queens.

Along with thousands of other middle-class New Yorkers, Feasel is feeling the big squeeze — what happens when taxes and fees go up while income stays flat and investments and property values fall.

Property taxes are just part of the pinch. Water and sewer charges were hiked 14.5% last July 1 and will go up another 12.9% this July 1. Fares, tolls, utilities and property assessments are all higher.

Add in 60 increased or new state fees and taxes — on everything from beer to hunting licenses — and its no wonder New Yorkers are wondering how they’ll make ends meet.

Own a deli or pizza parlor? Your “food licensing fee” is being jacked up from $100 to $250. Registering a car will cost $55, up from the old $44 fee. A monthly MetroCard will set back straphangers $89 instead of $81.

The increases are designed to close city and state budget gaps of more than $22 billion — but some say they’re misguided.

“It’s piling on and the middle class is getting killed,” said Controller William Thompson, who is running against Mayor Bloomberg in November. “There was no reason to raise water and sewer that much.”

Would A Payroll Tax Holiday Boost The Economy?

From MSNBC.com:

As the April 15 tax deadline approaches, two freshmen House members are offering a new version of a hardy tax code perennial: a six-month “holiday” from payroll taxes that they say would benefit both small businesses and the working poor.

Under the bill offered by Rep. Aaron Schock, R-Ill., and Rep. Walt Minnick, D-Idaho, employers and employees of businesses with 50 or fewer workers would pay no Social Security and Medicare taxes for six months. Currently, both employers and employees are required to pay the 6.2 percent Social Security tax and the 1.45 percent Medicare tax throughout the year.

According to the congressional Joint Committee on Taxation, payroll taxes are a bigger burden than income taxes for more than four out of five tax filers.

Lower-income workers would especially stand to benefit from a suspension of the taxes: according to the Joint Committee on Taxation, more than 60 million tax filers with incomes under $40,000 had tax returns in which their payroll taxes were greater than their income taxes.

A way to help low-income workers?

And according to the Tax Foundation, a nonpartisan think tank, more than 45 million tax filers had no income tax liability at all. A payroll tax cut is one of the few ways to reduce such workers’ federal taxes.

The tax holiday proposal would affect about 5 million firms and 34 million workers, according to Bill Rys, the tax counsel for the National Federation of Independent Business, which is backing the idea.

(The federation also backed Schock in his House race last year with a contribution of $2,000 of the total of $2.6 million which Schock raised.)

The payroll tax hiatus has been proposed in past recessions. Joel Slemrod, the director of the Office of Tax Policy Research at the University of Michigan Business School, says in his book "Taxing Ourselves" that “some Democrats responded to Republican income tax proposals in 2001 and 2003 by advocating temporary cuts in the Social Security payroll tax instead” as a way to help low-income people.

Among those supporting the idea of temporarily suspending the payroll tax in 2003: then-presidential hopeful Sen. John Kerry, D-Mass., and Sen. Mary Landrieu, D-La.

The Schock-Minnick bill would require small-business owners to invest the savings from the payroll tax holiday in hiring new workers or buying machinery or other investments to make their firms more productive.

Jobless Rate Bolts to 14-year High of 6.5 Percent

From Yahoo Business News:

The nation's unemployment rate bolted to a 14-year high of 6.5 percent in October as another 240,000 jobs were cut, far worse than economists expected and stark proof the economy is deteriorating at an alarmingly rapid pace.

The new snapshot, released Friday by the Labor Department, showed the crucial jobs market quickly eroding. The jobless rate zoomed to 6.5 percent in October from 6.1 percent in September, matching the rate in March 1994.

Unemployment has now surpassed the high seen after the last recession in 2001. The jobless rate peaked at 6.3 percent in June 2003.

October's decline marked the 10th straight month of payroll reductions, and government revisions showed that job losses in August and September turned out to be much deeper. Employers cut 127,000 positions in August, compared with 73,000 previously reported. A whopping 284,000 jobs were axed in September, compared with the 159,000 jobs first reported.

So far this year, a staggering 1.2 million jobs have disappeared. Over half of the decrease occurred in the past three months alone.

Although the unemployment report was worse than expected, and Ford Motor Co. reported dismal third-quarter results and announced plans to cut more than 2,000 additional white-collar jobs, Wall Street investors appeared to take it all in stride. The Dow Jones industrial average was up more than 190 points in morning trading.

About 10.1 million people were unemployed in October, an increase of 2.8 million over the past year. A year ago, the unemployment rate stood at 4.8 percent.

President Bush said the dismal employment figures reflect "the difficult challenges confronting the economy" and urged the country to have patience, saying a flurry of unprecedented government measures -- including a $700 billion financial bailout package -- will take time to work.

"I understand that Americans deeply concerned about the challenges facing our economy, but our economy has overcome great challenges before, and we can be confident that it will do so again," Bush said.

The Impact of the Economic Downturn on the Legal Industry

One of my favorite blogs, TheGlassHammer.com, has posted a very interesting article by Heather Chapman on the impact of the poor economy on the legal industry. Below is a snippet from the article, so be sure to click here for the full version.

The financial market isn’t the only industry being affected by the recent downturn in the U.S. economy. Businesses all across the nation have seen a decline in customers. However, in the legal industry, the number of bankruptcy, litigation, regulatory compliance, white-collar defense, and divorce cases has risen as people and businesses try to either save themselves from collapse or cash in on someone else’s. With questions like “Should I keep investing my money?” to “What do I do about my health insurance plan?” lawyers are finding that business is booming.

Rjon Robins, attorney and founder of a lawyer coaching website, says that he is seeing more personal consumer bankruptcies. “The biggest reason is the social factor. When you see other people around you taking advantage of bankruptcy relief the social stigma is reduced which makes the decision easier for you to make. The same is true of commercial bankruptcies. Except that business owners tend to come to the decision a little faster with the help of accountants and vendors who prevent them from avoiding the reality of their predicament.”

He continued, “Litigation attorneys are seeing an uptick in new business. And we expect that trend to continue too, but not necessarily because the economy is causing people to have more reason for litigation. Rather every time we see a down-swing in the economy what seems to happen is that people who might otherwise have focused on the future instead of resorting to litigation start to try and tie-up loose ends.”

Thomas W. Kerner, attorney for Kerner & Betts in Williamsburg, North Carolina, agrees. He sees consumer debt collection and tax litigation rising, in addition to business-to-business (B2B) debt collection. “Especially among contractors and subcontractors who are not being paid because banks have pulled the funding on projects they’ve put months of work into; I would say 75-80% of it is directly or indirectly related to the building slowdown, which has been fueled by the collapse of the housing market and the tightening of lending practices which has caused a lot of projects to stop dead in their tracks.”

AIG Plans Another Lavish Resort Event

Last week, AIG (American International Group Inc.) got lots of bad publicity for hosting a $440,000 conference just weeks after getting bailed out by the federal government. Both the White House and Congress spoke out in displeasure, and both presidential candidates have also chastised AIG for the costly event. However, according to Bloomberg, they are already planning another.

“The event, at the Ritz-Carlton in California's Half Moon Bay, aims to ‘motivate and educate'’ about 150 independent agents who sell AIG coverage to high-end clients, said spokesman Nicholas Ashooh.

White House spokeswoman Dana Perino today called ‘despicable’ expenses from the first gathering, a weeklong conference last month at the St. Regis Resort in Monarch Beach. Those costs included $23,000 for spa services, according to Representative Henry Waxman, chairman of the Oversight and Government Reform Committee.

AIG considered buying advertisements to explain its position, only to be told by public relations consultant George Sard that it would be ‘a really bad idea.’

‘To spend the taxpayer's money on an expensive ad campaign to apologize for how you used taxpayer money leaves you open to further attacks,’ Sard wrote in an e-mail to Ashooh. Sard, chief executive officer of New York-based Sard Verbinnen & Co., said the message was a private e-mail mistakenly sent to Bloomberg and wasn't intended to be a public statement.

President George W. Bush didn't push for the bailout ‘to help top executives go to a spa,’ Perino said today at the daily White House briefing. Hours later, the Federal Reserve agreed to loan AIG an additional $37.8 billion on top of the initial $85 billion.

AIG Chief Executive Officer Edward Liddy, who replaced former CEO Robert Willumstad as a condition of the federal loan, today told Treasury Secretary Henry Paulson that the company intends to reevaluate expenses.

‘We understand that our company is now facing very different challenges,’ Liddy wrote in a letter to Paulson. ‘We owe our employees and the American public new standards and approaches.’

Common Misconceptions About the Wall Street Bailout

With ongoing media coverage from every angle, the Wall Street bailout legislation has become a web of complicated myths and facts that can be difficult for the average taxpayer to untangle. In times like these we turn to political leaders to let us know what is going on and what they are going to do about it. Unfortunately, we are at the tail end of an election season and many of our leaders are more concerned about the election then fixing our economy. It hard to trust candidates fighting for your vote or leaders who waste time playing the blame game. To help out the readers of my blog sort through this web of facts, I have compiled this list of common misconceptions about the Wall Street bailout.

Myth: The bailout will only help Wall Street, not people living on Main Street

Reality: Although Wall Street has lost the trust of taxpayers, our economy depends on it. The bailout isn't made to directly "help" any one specific person, but to help maintain the lifestyle of all Americans. It means keeping your bank accounts, loans, small business, insurance, and job in place. It means keeping your life in place.

Myth: Nancy Pelosi's speech changed Republican votes

Reality: While Pelosi’s speech was a toe over the line and obviously attacked Republicans, it is still doubtful to me that it actually changed any votes. By the time congress was in session that day, they should have sufficiently reviewed the bill and already had their votes decided. While some Republicans and Democrats alike were upset by what Pelosi said, her words caused outrage—not the death of the first legislation.

Myth: Congress spent too much time passing the bill

Reality: While many were upset by the first bills failure, Congress was simply doing their job. It is their duty to review, re-review, and thoroughly discuss important bills. Hundreds of billions of dollars were on the table, and rash decisions were simply not the right way to go. I doubt anyone really wanted them to push the bill through without giving it the attention it deserved.

Myth: The entire economic crisis is Bush’s fault

Reality: While it'd be easiest to point the finger at a single person, the fact is the economic crisis been coming for longer than just eight years. Democrats and Republicans alike pushed changes to regulations that governed financial institutions. In addition, I would not solely blame improper loan companies or even the corporations that need bailing out. This is a deep-rooted crisis cause by dozens, if not hundreds of mistakes that have been made.

Myth: The bailout will provide immediate relief

Reality: While the country watches as more jobs are lost and the DOW continues to fall, they are wondering why the bailout is not working yet. The truth is that the U.S. Treasury Department needs to set up a system to distribute the funds, and it could take as long as six weeks before they get to that point.

Myth: Innocent taxpayers are paying for the bailout

Reality: What a lot of people do not realize is that their money is not being wasted. In exchange for the funds, the federal government will take partial ownership of the companies it bails out. Then will then be able to sell these shares in the future, possibly even for a profit! Additionally, by investing into companies it will assure a more sound American economy, which will benefit everyone who lives in this country.

Myth: Why bail them out? The sooner they fall, the sooner we recover

Reality: While this could work, the downside is that if it does not, we will all be in the hole. Unfortunately this country is not just relying on itself, and a pretty big chunk of our debt lies on foreign investors who are not very impressed with the situation. If those investors decide to pull their funds from American investments, then the economy could get much worse.

Myth: The bailout will reduce the value of the dollar

Reality: The U.S. dollar is on a flux, meaning that it is not going up or down... it is doing both. Even before the bailout this was the case, and it is not likely to affect inflation dramatically either way. The financial meltdown is a worldwide crisis, and the dollar has actually made significant improvements over foreign currencies over the past few weeks.

It's Time to Think Big on Tax Cuts

From the Wall Street Journal:

John McCain needs to show the nation that he has the economic recovery plan to restore long-term economic growth. To do that, he needs to refocus his campaign with a new tax plan. Mr. McCain should come out for an alternative, optional flatter tax system, which he has already supported.

Under this proposal, Americans could file their income taxes under the existing tax code or they could choose instead to pay taxes under a simpler code with fewer deductions but lower tax rates. Building on work already done by Steve Forbes and House Budget Committee member Paul Ryan, a Wisconsin Republican, Mr. McCain could propose an optional tax system with just two rates, 10% and 25%, compared to the six rates of the current code ranging from 10% to 35%.

What's more, such a proposal would include a cut in income taxes, and tax rates, for every American who pays taxes. The alternative system would impose no income taxes on the poor and what is often called "the working class" (the bottom 40% of income earners who don't pay federal income taxes now). This proposal would also eliminate federal income taxes on the middle class, the middle 20% of income earners who pay only 4.4% of all federal income taxes today.

The new tax system would allow most Americans to file their taxes on a single sheet of paper, saving them the hundreds of dollars they spend today to have their taxes professionally prepared.

And such a tax reform would be an antidote to the class warfare, neocollectivist tax policies of Barack Obama. If implemented, it would also jump-start the economy. Under this optional tax system, savings would increase and investment would soar as capital around the world is drawn to a suddenly more confident U.S. economy.

This new surge of capital would end the credit crunch, and allow old businesses to expand and new ones to start. Wages would grow, along with the overall economy. And as the world invested in America, the dollar would strengthen, as happened in response to the tax cuts that generated the 1980s Reagan boom. This would ease inflationary fears and pressures on the Fed.

With a strong dollar, the Fed would be under less pressure to try to revive the economy through monetary policy. That would give Mr. McCain the flexibility to push for a new "price rule," which would base monetary policy on prices of a basket of commodities, including gold.

Senator Clinton Calls for Renewed Bipartisan Action on Economic Crisis

From Yonkers Tribune.com:

Sen. Hillary Rodham Clinton today underscored the need for quick bipartisan action to halt the growing economic crisis. In a conference call with media, Senator Clinton said the economic impact of failing to address the crisis would spread well beyond Wall Street and seriously damage Main Street as well. Senate Clinton said jobs, family incomes, and the broader economy is at risk if nothing is done to stem the crisis. She described the bipartisan plan narrowly rejected by the House of Representatives yesterday as a flawed but necessary compromise and a major improvement over the Bush Administration’s initial proposal.

“I understand the deep skepticism surrounding the proposal, and clearly I was against the original plan sent over from the Treasury because it was a blank check giving Treasury virtually unlimited powers to do whatever they saw fit,” Senator Clinton said. “But we have negotiated through the Congress on a bipartisan basis a better alternative that installed taxpayer protections, asserted oversight and accountability, and came up with the checks and balances we should have had rather than the blank check.”

Senator Clinton urged her colleagues to set aside their differences and make hard compromises for the good of the nation.

“We cannot let the perfect be the enemy of the good, or in this case the enemy of what’s necessary,” Senator Clinton said. “We have to go back and in a bipartisan fashion, face up to the difficult decisions ahead of us.”

Euro Falls Most Since 2001 Against Dollar as Bailouts Spread

From Bloomberg.com:

The euro fell the most against the dollar since 2001 after France and Belgium led a state-backed rescue of Dexia SA, as the widening financial crisis forces governments to prop up financial institutions across Europe.

The cost of borrowing in dollars and euros reached record highs today as banks' reluctance to lend at the end of the third quarter exacerbated the freeze in global credit markets. The dollar rose against the yen on speculation the U.S. Senate will salvage a $700 billion bank-bailout plan as early as tomorrow after Congress rejected it yesterday.

``The consensus is the U.S. banking system is a little bit further along in its exposure of its toxic assets,'' said Firas Askari, head currency trader at BMO Nesbitt Burns in Toronto. ``It's a case of which is relatively worse. The dollar's going to benefit against the euro because Europe has more to expose.''

The euro tumbled 2.4 percent to $1.4092 at 5 p.m. in New York, from $1.4434 yesterday, the most since a 2.5 percent slide in January 2001. The currency dropped as much as 3 percent, the biggest intraday decline since its 1999 debut. The euro slid to 149.56 yen from 150.38. The yen weakened to 106.11 per dollar from 104.18, after reaching 103.54, the most since Sept. 16.

Implied volatility on one-month euro-dollar options rose to 16.9575 percent, or the highest in almost eight years. On Sept. 18, it reached 15.55 percent, the same level that triggered the Group of Seven nations to buy euros in 2000 to halt the 27 percent slide from its 1999 debut. The dollar had its biggest drop ever against the euro Sept. 22, falling 2.1 percent.

The euro also fell against the British pound after Belgium and France said they would lend Dexia, the world's biggest lender to local governments, $9.2 billion to shore up capital.

House Votes Down Bail-Out Package

The House voted down a $700 billion plan aimed at bailing out Wall Street.

The rescue plan, a result of tense talks between the government and lawmakers, was rejected by 228 “nea” to 205 “yea” votes. About two-thirds of Republican lawmakers refused to back the rescue package, as well as 95 Democrats.

Shares on Wall Street plunged within seconds of the announcement, after earlier falls on global markets.

President George W. Bush was "very disappointed" by the result. He would meet members of his team in the coming days to "determine next steps", spokesman Tony Fratto said.

The BBC's Adam Brookes, in Washington, said Democratic leaders in the House were likely to try and convince a number of their members who voted against the bill to change their minds in coming days.

Speaking after the vote, Republican leaders suggested the Democrats were to blame, accusing them of failing to mobilize their majority in the chamber.

Democratic presidential candidate Barack Obama spoke shortly after the vote, saying it was an outrage that ordinary people were being asked to clean up Wall Street's mess.

Policymakers: Congress Must Move Quickly to Avert Damage

From WashintonPost.com:

Consensus is building in Congress that a version of the bailout will be passed, and quickly, but that it will involve considerably more oversight and other provisions than were in the Bush administration's original plans.

In their most vigorous public defenses of the planned bailout to date, Paulson and Bernanke almost seemed to echo the outrage from their questioners. But they argued that the plan is necessary to protect ordinary Americans from the economic fallout of clogged markets for credit.

"I'm not only concerned, I'm angry about the things that got us here," said Paulson. "It makes me angry, and it makes you angry. You talk about taxpayers being on the hook? Guess what? They're already on the hook. If the system isn't stabilized, they're going to bear the cost."

He said later in response to a question, "I share the outrage that people have. It's embarrassing for the United States of America."

Both Paulson and Bernanke stressed that they are still working through details of how the government would price the troubled mortgage assets it buys under the $700 billion plan. But they asked that Congress leave them maximum flexibility to design those auctions or other procedures as they and their expert advisers see fit.